Officials called the myriad of government measures over the last 18 months, supposedly to deal with the pandemic, “temporary,” but that qualifier may no longer apply. As evidence, look no further than the recent extension of the student loan repayment moratorium. Thanks to the freeze on federal student loan payments and other costly government handouts, America has 10.1 million unfilled jobs.
Just like the unemployment bonus, the eviction and foreclosure moratoriums, food stamp expansion, Medicaid growth, and enhanced child tax credit, the moratorium on federal student loans is keeping Americans out of the workforce. These measures have either artificially reduced prices for things like food and housing or have simply been “free” government handouts—for not working.
The moratorium on federal student loan payments has been in effect since March 13, 2020, when it was enacted as a response to the pandemic. If the program really does end after January 2022, then it will have lasted 690 days, or almost two years.
The U.S. Department of Education ensures us that this will be the “final extension,” but a similar promise was made about the eviction moratorium only to be reversed in apparent defiance of a Supreme Court decision. As Milton Friedman wrote, “nothing is so permanent as a temporary government program.”
While this student loan payment moratorium is in place, interest is not accruing, payments have been suspended, and collections have been paused.
According to the Secretary of Education, the moratorium applies to 42.8 million borrowers with $1.4 trillion in student loans. Those borrowers have collectively saved more than $5 billion a month, but the interest from those student loans is used to fund government spending. In the absence of those interest payments, the federal government loses out on a substantial source of revenue, more than $110 billion for the length of the moratorium, at a time when it is already running record deficits. And who will fill that gap in missing revenue? American taxpayers, of course.
Taxpayers are shouldering the burden of those who knowingly and willingly took out student loans. Add on to this the fact that it is disproportionately upper-income households that owe the most student loans, and it is clear that those who can most afford to pay back student loans are also greatly benefiting from this moratorium—socialism for the rich.
Furthermore, those who were fiscally responsible or who budgeted wisely for college and did not rely on government loans receive no benefit. This is government subsidization of fiscal irresponsibility at the expense of the prudent.
Apparently, budgeting and saving are for chumps.
In fairness, not everyone with student loans acted imprudently. Some people borrowed a sensible amount with a reasonable anticipation of repaying their loans out of a relatively high salary. It was government malpractice that shut down the economy and cost many people their jobs, including those who otherwise would have been able to regularly repay student debt. But as of June, there were 600,000 more unfilled jobs than unemployed Americans. The jobs are back, but the workers are not.
In addition to creating more pain for taxpayers, this freeze also disrupts the labor market, and that is the greater harm to the economy writ large.
If there is no need to pay back student loans, then there is no need to work to earn the money for those payments. Instead of working, millions of Americans choose to stay home, which means lost economic activity, lost tax revenue, and more dependency on government. This effect is playing out in real time, as labor markets in states that ended unemployment “bonuses” are recovering 33% faster than those states that continue to gratuitously subsidize the unemployed.
But perhaps the worst effect of the moratorium is that it creates uncertainty that further distorts the labor market.
This moratorium and other interventions have created an environment in which people cannot predict if specific government interventions will be expanded, extended, edited, or ended. That makes it impossible to plan—both as an individual and for a business—and makes it necessary to hedge economic behavior extensively.
Furthermore, when Americans cannot plan because they do not know what government intervention is coming next, they stop investing. And this is exactly what we have seen as gross private domestic investment has declined over the last two quarters.
The evidence from the labor market, and elsewhere, is clear: These government interventions are chaotic and inefficient. Unfortunately, those costs at the expense of Americans are rarely considered when determining public policy.